Pre-incorporation contracts are provisional and unenforceable where a company never attained entitlement to commence business, blocking recovery.

Pre incorporation and post incorporation expense claims were assessed against the statutory rule that contracts entered before a company is entitled to commence business remain provisional and do not bind the company until entitlement is attained; applying that principle the article concludes there is no basis to imply a promise to pay pre commencement expenses where the company never became entitled to commence business, and therefore such claims cannot be admitted in liquidation. The operative effect is deletion of the claimant's pre incorporation claim from the list of debts and claims and denial of recovery under general contract principles when statute precludes a binding obligation.

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Issues: (i) Whether the claim by Sharada Agencies for expenses (pre- and post-incorporation) is payable in the liquidation of Ambica Textiles Ltd.

Analysis: The claim includes amounts said to have been paid before and after incorporation for formation, registration, and management. Section 103(3) of the Indian Companies Act treats contracts made before a company is entitled to commence business as provisional and not binding until the company attains that entitlement. Under that principle, pre-incorporation expenses and contracts are not enforceable against a company that never became entitled to commence business. The Court examined authority distinguishing statutory liabilities and held that where the statute prevents a binding contract before commencement, no implication of a promise to pay arises under general contract principles.

Conclusion: The claim of Sharada Agencies is dismissed and the claim is deleted from the list of debts and claims.

Ratio Decidendi: Section 103(3) of the Indian Companies Act renders contracts made before a company is entitled to commence business provisional and not binding, thereby precluding recovery of pre-commencement expenses against a company that never became entitled to commence business.

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